A bankrupt restaurant owner has been convicted of fraud and jailed for three years, the harshest sentence yet for hiding assets to cheat a government fund designed to protect former workers.

Deputy District Judge Ernest Lin Kam-hung yesterday jailed Tsang Yung-ping, 46, for cheating the government's Protection of Wages on Insolvency Fund, which was set up in 1985 to help unpaid workers whose employers had gone bankrupt.

The judge said that while the financial loss to the government was only HK$800,000, Tsang's unscrupulous behaviour was like a "cancer cell", causing harm to the city.

The case involved a company called Head Dragon Investment, set up in February 2001, which ran a Chinese restaurant in Sham Shui Po. The business began to struggle in mid-2002 and, in August 2003, Tsang closed the restaurant, owing salaries to 66 workers.

Tsang declared to liquidators that all assets belonging to the restaurant, including cooking utensils, furniture and other equipment, had been confiscated by creditors. Rather than pay his ex-workers, Tsang used all of those assets to open a new restaurant under a different name, prosecutors said.

After debtors applied to close Head Dragon in 2004, the workers successfully applied for HK$780,000 from the insolvency fund, prosecution counsel Edwin Choy told the court.

"The government and taxpayers are the victims," said Lin, who argued that the fraud threatened Hong Kong's status as a free economy that heavily relied on self-discipline and industry.

"If the unscrupulous practice, as in this case, keeps going on, the government will [have to] amend legislation to plug the legal loopholes. As a result, it would risk the business standing of Hong Kong, affect the operation of the market and undermine the [city's] competitiveness," the judge said.

Tsang was convicted of one count of fraud and acquitted of three other counts. The Labour Department puts the sentence as the heaviest penalty for abuses of the fund since 2010.

This article appeared in the South China Morning Post print edition as Restaurant owner jailed for cooking the books